Private home prices in muted fall: URA index

Singapore

THE latest government stats show that the official private home price index has eased 9.1 per cent over 10 consecutive quarters since the peak in Q3 2013.

And that peak had come after a 62.2 per cent ascent from the post-global crisis trough in Q2 2009.

The Urban Redevelopment Authority (URA) index fell 0.7 per cent quarter on quarter in Q1 this year, after easing 0.5 per cent in Q4 last year.

Some property industry players may continue debating just how accurately the index captures what is going on in the market, but few deny that there has been a definite return in confidence to the market since March, following the stock market recovery.

This is evidenced from successful launches of projects such as Cairnhill Nine and The Wisteria, which are encouraging more developers to start preparing for launches again.

JLL's analysis of URA data found an uptick in both primary and secondary market sales of private homes in Q1 this year, compared with Q1 last year.

One view in the market is that the government's reiterations - that it is too early to start relaxing the property cooling measures - may have spurred some potential buyers who had been waiting on the sidelines to make a commitment.

Prices of non-landed private homes in the suburbs or Outside Central Region(OCR) fell 1.3 per cent q-o-q in the first quarter, after remaining unchanged in the previous quarter. However, prices in the Core Central Region (CCR) and in the city-fringe or Rest of Central Region (RCR) were more resilient. The index for CCR edged up 0.3 per cent in Q1, contrasting with a drop of the same magnitude in Q4. The price index for RCR was unchanged, after easing 0.4 per cent previously.

The picture is grimmer in the rental market. URA's rental index for private residential properties slipped 1.3 per cent q-o-q in Q1, the same rate of decline as in the previous quarter. One could look on the bright side and say that private housing completions are set to slow significantly from next year - in tandem with the scale-back in state land sales. Some 12,760 private homes are slated to receive Temporary Occupation Permit (TOP) next year - about half the 23,435 units estimated for TOP this year.

But things are set to get worse before they get better.

The step-up in completions from 2014 to 2016 is set to cause some indigestion in the next couple of years. The inflow of expats is expected to remain slow and housing budgets tight - especially given a weakening economy.

SLP International executive director Nicholas Mak expects an oversupply of completed private homes in the next three years. "Assuming the rate of population growth in Singapore remains constant, the situation in the leasing market would only start to improve after 2018."

Hence, it is quite likely that URA's private residential rental index will drop at a faster clip than its price index this year. "For the whole of 2016, the price index could fall by between 2.5 and 4 per cent, while the residential rental index may drop at twice the rate - 5 to 8 per cent," he said.

JLL's Ong Teck Hui also highlighted that while the decline in the price index has been moderating since 2014 - it fell 4 per cent in that year and 3.7 per cent in 2015 - the decline in the rental index is gaining momentum. It shrank 3 per cent in 2014 and by a more significant 4.6 per cent in 2015. "And based on the 1.3 per cent drop in Q1 2016, we expect to see a tougher year for the leasing market in 2016," he added.

The vacancy rate for private homes improved to 7.5 per cent at end-Q1 from 8.1 per cent as at end-Q4, due partly to much lower completions in Q1. In Q1, only 2,919 units received TOP, a drop of 46 per cent from the 5,382 units completed in Q4 last year.

Vacancy rates are expected to climb again in the coming quarters. URA's data also shows that prices of landed homes slipped 1.1 per cent in Q1, against the 1.8 per cent fall in the previous quarter.

Rentals of landed homes shed 2.2 per cent in Q1, after slipping 2.3 per cent in the last quarter.

While some of the latest URA stats would lend credence to the government's strategy of holding back on lifting the property cooling measures for fear of re-igniting the market, there are other factors to consider. Rolling back the cooling measures at this point may send the wrong signal and prompt people to jump into the property market just when the economy is not doing well, say observers.

This could leave a lot of investors burnt. Moreover, fears of interest rate hikes have lesssened. "With the US Fed taking a dovish approach on interest rates, there is still a lot of liquidity around and the government here probably worries that the property market may reignite," said a seasoned property market watcher.

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